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5. Audit ContractCl*ty of Kali Past office Box 1997 -- Kalispell, Montana 59903-1 997 el h 4 - - - T one 0b 8 00 4 75 7 0 Fax o6 758 7 8 75 Date: March 20, 2010 To: Mayor Fisher and City Council Members From: Amy Robertson, Finance Director Jane Howington, City Manager RE: Audit contract 20 l 0-2012 We have received a contract proposal for the three year audit period FY2010, FY2011 and FY2012 from our current auditors Denning, Downey & Associates, P. C., CPA's. This contract is a standard audit contract provided by the State Department of Administration. The firm is on the State's list of qualified governmental auditors and their offices are in the City of Kalispell. Bob Denning and Kim Downey were auditors for the State at the time the state privatized the audit function. At that time they set up their own firm here in Kalispell. They audit cities, counties and school districts across the state and employ about 15 people. I've included the Firm Profile for your inspection. Our current audit contract is $25,825. The new audit contract will freeze the cost at the current amount for all three years. The audit costs are charged out to the various funds. This price seems most reasonable considering that these audits will include the federal requirements for the ARRA grants — stimulus funds and compliance with new GASB pronouncements. This will be an A- 133 Federal Audit. I am happy to answer any questions you might have. LOCAL GOVERNMENT SERVICES BUREAU THIS CONTRACT is made this STANDARD A[TDIT CONTRACT 16th day of Februa ._.._. 2010 , by and between Denning, Downey &Associates, CPA's P.C. (Certified or Licensed Public Accountant) hereinafter referred to as the "Contractor" Citv of Kalispell (Governmental Entity) hereinafter referred to as the "Entity", and the Montana Department of Administration, Focal Government Services Bureau, hereinafter referred to as the "State`, acting under the authority of Title 2, Chapter 7, Part 5, of the Montana Code Annotated. It is hereby agreed that: I. This contract is not effective with respect to any party until it is approved and signed by the State, as required by Section 2-7-506(3), MICA. The Contractor may not begin any audit work until the State gives this approval. If the Contractor begins work before the State has approved the contract and the State subsequently does not approve the contract, the Contractor is not entitled to receive any compensation for the work performed. 2. The audit period or periods covered by this contract begins July 1 , 2009 and ends June 3 0 , 2012 a. In consideration of the faithful performance of this contract, the Entity will pay the Contractor for the audit work on the basis of time and necessary out-of-pocket expenses, which will not exceed: $25282 for initial (or sole) audit covering 07/ Ol/ 09 $ 25,825 for subsequent audit covering 07 / Ol / 10 $ 25,825 for subsequent audit covering 07 / 01 / 11 to 06130 110. to 06130 1 11 . to 06130 1 12 . The fees are set out in detail in Appendices A, B & C, as applicable, which are attached hereto and by this reference made a part hereof b. where the cost of any subsequent audit is not agreed upon at the time this contract is executed, the cost will be negotiated by the Contractor and the Entity. The results of this negotiation will be set forth in the Appendices and made a part of this contract. The Contractor will provide the State and the Entity with a copy of the appropriate Appendices. C. The total cost of the Contract Audit does not include the cost of additional work that may be required in the event the Contractor discovers a defalcation or material irregularity. Any change in the scope of the audit services to be provided under this contract requires a contract amendment. PORMISAC01 Page 1 of 12 3147 2. continued: d. The Contractor may submit interim bills to the Entity each month, based upon the estimated percentage of completion of the contract. The Entity may retain 10 percent of each of these estimates until the Contractor has delivered the final audit report, at which time the Entity will release the amount retained. 3. The Contractor will conduct a financial statement audit of the Entity: a. The audit will be made in accordance with generally accepted auditing standards adopted by the American Institute of Certified Public Accountants and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. The objective of the audit is the expression of an opinion by the Contractor on the financial statements of the Entity. The Contractor will obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Accordingly, a material misstatement may remain undetected. Also, the audit will not be designed to detect error or fraud that is immaterial to the financial statements. If, for any reason, the Contractor is unable to complete the audit or is unable to form or has not formed an opinion, the Contractor may decline to express an opinion or decline to issue a report as a result of the engagement. b. The audit will include tests of internal control over financial reporting, but will not be designed to provide an opinion on internal control or to identify reportable conditions (or significant deficiencies, depending on the terminology appropriate to the professional standards in effect for the year(s) being audited). The Contractor, however, will be responsible for making the Entity aware, in writing, of any reportable conditions (or significant deficiencies) that come to the Contractor's attention. C. The audit will include tests of compliance and other matters as required by Government ,Auditing Standards, but will not be designed to provide an opinion on such compliance. (1) The audit will include tests to determine whether the Entity has complied with all appropriate statutes and regulations, as required by Section 2-7-502, MCA. (2) The audit will include tests to determine whether the Entity has complied with the provisions of each of its revenue bond ordinances and indenture agreements. (3) If the audit is of a coon city or town, it will include tests to determine whether money is or has been retained in a local charge for services fund contrary to the requirements of Section 17-2-301 through 17-2-3 03, MCA, as required by Section 17-2-3 02, MCA. The Contractor will report any findings of noncompliance with the provisions of these statutes, regardless of materiality. (4) If the audit is of a county or consolidated ci /county government, the audit will include tests for compliance with state laws relating to receipts and disbursements of agency funds maintained by the Entity, as required by Section 2-7-505, MCA. d. when applicable, the audit will meet all requirements of the Federal Single Audit Act of 1984, as amended by the Single Audit Act Amendments of 1996 and OMB Circular A-133. FORM/SACOI Page 2 of 12 3107 3. continued: e. The audit scope with regard to federal financial assistance for each fiscal year covered by this audit contract will be as specified in Appendices A, B and C. which are attached to this contract and by this reference made a part of this contract. f. For purposes of determining the scope of the audit, the Entity will be considered to be the financial reporting entity as defined by the Governmental Accounting Standards Board. g. The audit of any school district will also include: (1) Tests to verify the accuracy of the school district's enrollment for the fiscal year or years being audited as reported to the Office of Public Instruction in the Fall and Spring enrollment reports. (2) When applicable, an audit of the extracurricular funds for pupil functions. h. If the Entity is a school district or associated cooperative, the Contractor will contact the State office of Public Instruction and the county superintendent of schools prior to or during the audit of the Entity. These contacts will be made to determine whether those offices are aware of potential financial or legal compliance problems relating to the Entity that could affect the scope of the audit. i. The Contractor will immediately notify the Entity and the State in writing of any material irregularities it discovers. If the Entity is a school district or special education cooperative, the Contractor will also notify the Office of Public Instruction. j. The Contractor will provide the Entity with a copy of its most recent external peer review report and any letter of comment, and any subsequent peer review reports and letters of comment received during the period of the contract. 4. The Entity will be responsible for: a. Its basic financial statements, including note disclosures; b. Establishing and maintaining effective internal control over financial reporting; C. Identifying and ensuring that it complies with the laws and regulations applicable to its activities; d. Making all financial records and related information available to the Contractor; e. The schedule of expenditures of federal awards required for audits conducted under OMB Circular A- 133; f. Adjusting the financial statements to correct material misstatements; and g. Providing the Contractor, at the conclusion of the audit engagement, with a letter that confirms certain representations made during the audit, including an affirmation that the effects of any uncorrected misstatements aggregated by the auditor during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. FORM/SAC01 Page 3 of 12 3107 5. The Entity will prepare its annual financial report or a trial balance of accounts no later than the dates specified in Appendices A, B and C. If the Entity is unable to prepare its annual financial report or trial balance by the date specified in the Appendices, the Entity will notify the Contractor and the State in writing. 6. The Contractor will begin the field audit work, and will deliver the audit report to the Entity and the State, in accordance with the schedule established in Appendices A, B and C. If the Contractor cannot deliver the audit report to the Entity and the State on the date specified in the Appendices, the Contractor will notify the Entity and the State in writing of that fact, and the reason(s) thereof. The Contractor will then request in writing an extension from the State. The State's approval or denial of this request will also be in writing. 7. Pursuant to Section 2-7-503(3)(a), MCA, all audits must be completed and the reports issued within one year from the close of the last fiscal year covered by the audit. If the audit is conducted in accordance with the provisions of OMB Circular A-133, the Contractor will also complete the audit and issue the audit report within the time period required by that Circular, unless a longer period has been agreed to in advance by the federal cognizant or oversight agency for audit. 8. The final audit report must contain basic financial statements and required supplementary information in accordance with financial reporting standards in effect for the year or years being audited, as established by the Governmental Accounting Standards Board. In addition, other supplementary information required by provisions within this contract and by OMB Circular A-13 3 must also be included, if applicable. a. The final audit report must also contain any other financial statements and supporting schedules and information as agreed upon by the Entity and Contractor. b. The financial statements presented should be in accordance ,with the financial reporting standards in effect for the year or years being audited, as described above. If the accounting records or other circumstances will not permit financial statements to comply with these requirements, the Contractor will notify the State of those conditions and describe the financial statements that will be presented. This notification will be in writing. The applicable auditor's reports will also be modified as required. C. If the audit is of a school district with separate elementary and high school district general funds, the general funds will be combined as a single maj or fund. All other funds will be separately considered for major fund criteria. d. If the audit is a biennial audit covering two years, the Contractor will present complete financial statements as specified above for each year covered by the audit. The two years must, however, be presented under one audit report cover, and opined upon in one Independent Auditor's Report. 9. All audit reports will contain the following auditor's reports, which must comply with applicable professional standards in effect for the fiscal year or years being audited: a. An independent auditor's report on the financial statements of the Entity. b. A report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards. If applicable, this report should include information about fraud, illegal acts, significant violations of provisions of contracts or grant agreements, and significant abuse, or indications of these acts. FORMISA.CO I Page 4 of 12 3/0 7 9. continued: C. A report disclosing any lack of compliance with State statutes, rules, regulations, or ordinances that would not have a material effect on the financial statements. This report must be referred to in the report required in 9.b. above. This report may be combined with other reports if appropriate, or the findings may be included in a management letter. If included in a management letter, that letter must be included as a part of, or accompanying, the audit report. d. A report on supplemental schedules or information, including the supplemental schedule of school district enrollment required by paragraph I La. and the supplemental schedule of school district extracurricular fund financial activities required by paragraph l Lb., if any such schedules or information are presented in the audit report. This report may be given in a supplemental information paragraph of the auditor's report on the financial statements 9.a. above, or in a separate report. e. A report disclosing the action taken by the Entity to correct any deficiencies or implement any recommendations contained in the prior audit report. This report must be in a format that specifically identifies, by title or summary, each deficiency or recommendation contained in the prior audit report and the action taken by the Entity on each such deficiency or recommendation. f. If the Contractor includes audit findings in the reports referenced in 9.b. and 9.c. above or in a management letter, the views of entity officials and their planned corrective actions should also be included, as required by Government Auditina Standards, if they are available at the time the Contractor files copies of the audit report with the State. If the views and planned corrective actions are not available at that time, the Contractor should so indicate in the reports. 10. All audit reports for single audits done in accordance with OMB Circular A-133 must also contain the following: a. A schedule of expenditures of federal awards. (1) As required by OMB Circular A-133, the schedule must: (a) List individual federal programs by federal agency. For federal programs included in a cluster of programs, list individual federal programs within a cluster of programs. (b) For federal awards received as a subrecipient, include the name of the pass -through entity and identifying number assigned by the pass -through entity. (e) Provide total federal awards expended for each individual federal program and the CFDA number or other identifying number when the CFDA information is not available. (d) Include notes that describe the significant accounting policies used in preparing the schedule. (e) To the extent practical, pass -through entities should identify in the schedule the total amount provided to subrecipients from each federal program. FORM/SACO1 Page 5 of 12 3107 10. continued: (f) Include, in either the schedule or a note to the schedule, the value of the federal awards expended in the foram of non -cash assistance, the amount of insurance in effect during the year, and loans or loan guarantees outstanding at year end. while not required, it is preferable to present this information in the schedule. (2) In addition, to provide information requested by State pass -through agencies for use in monitoring subrecipients, the schedule must contain: (a) The program or award amount; (b) The cash balance or fund balance of the program at the beginning of the audit period; (c) Federal receipts or revenues for the program for the audit period; (d) other receipts or revenues for the program such as program income, matching funds, or other receipts/ revenues for the audit period; (e) Non-federal expenditures associated with the program, if determinable; and (fl The cash balance or fund balance of the program at the end of the audit period. b. A report on the schedule of expenditures of federal awards. This report may be combined with other reports as provided by OMB Circular A-133 and professional standards. This report must comply with applicable professional standards in effect for the fiscal year or years being audited. C. A report on compliance with requirements applicable to each major program and on internal control over compliance in accordance with OMB Circular A-133. where applicable, this report should refer to the separate schedule of findings and questioned costs described in paragraph 10. d. of the contract. This report must comply with applicable professional standards in effect for the fiscal year or years being audited. d. A schedule of findings and questioned costs which must include the information required by OMB Circular A-13 3. e. The corrective action plan required by OMB Circular A-13 3, if that plan is available at the time the Contractor files copies of the audit report with the State. This corrective action plan may be combined with the Entity's planned corrective actions related to findings reported in accordance with Government Auditing Standards, as provided in paragraph 91, above. 11. School district audit reports must also include the following as supplemental information/schedules: a. A schedule of the district's enrollment as reported to the Office of Public Instruction for the fiscal year or years being audited. The schedule will contain the enrollment both as reported in the Pall and Spring enrollment reports and as documented by the school district's enrollment records. b. A detailed schedule of extracurricular fund financial activities FORM/SAC01 Page 6 of 12 3/07 12. The final audit report must contain any material findings relative to economy, efficiency or effectiveness in operations that are noted by the Contractor during the audit, along with the Contractor's recommendations for improvement. The report must also contain any other recommendations or comments for improvement that the Contractor deems pertinent. 13. The Contractor must render a single, written report for the Entity audited. The report must include, or be accompanied by, all written reports and letters discussing findings and recommendations from the Contractor to the Entity, including but not limited to the reports and schedules referred to in paragraphs 9 and 10 above as well as any management letters. 14. Before submitting the final audit report, the Contractor will hold an exit review conference in which the audit results are discussed with those charged with governance and appropriate Entity officials and employees. The Contractor must ensure that all members of the governing body and key members of management are notified of this exit conference. The Contractor further agrees that prior to submitting the final report, it will not discuss the audit findings with anyone other than the Entity or the State. However, once the Contractor delivers the final audit report the report is deemed to be a public record. 15. The Contractor and Entity will file copies of the audit report as specified below. a. The Contractor will provide the Entity with the number of copies of the audit report specified in Appendices A, B and C and the cost of those copies is included in the total price for the engagement as set out in paragraph 2.a., above, and in the Appendices. The Contractor will submit one of these copies to the attorney for the Entity. b. Upon request by the Entity, the Contractor will provide additional copies of the audit report at a price per copy agreed upon by the Entity and Contractor. c. The Contractor will provide the State with four copies of each audit report at no charge. These copies will be sent to the State at the same time the Contractor delivers the final audit report to the Entity, and will include any management letters. A letter of transmittal will accompany the State's copies which will advise the State as to the date of the exit conference, the date the final report was delivered to the Entity, the date of the audit report, the actual number of hours spent by the Contractor in the conduct of the audit, the total audit fees billed the Entity, whether the audit was conducted in accordance with the provisions of OMB Circular A-13 3, and whether there were any findings or opinion qualifications in the audit report, and if so whether the entity's corrective action plan or response was included as part of or submitted with the audit report. d. If the Entity is a school district or associated cooperative, the Contractor will provide copies of the audit report to the office of Public Instruction, the county superintendent of schools, and the county attorney. e. If the Entity is a city or town fire department relief association disability and pension fund, the Contractor will provide one copy of the audit report to the city or town clerk. f. If the audit is a single audit conducted in accordance with the provisions of OMB Circular A-133, the Entity will provide copies of the reporting package defined in OMB Circular A-13 3 and the data collection form to the federal clearinghouse designated by OMB. In addition, the Entity will provide either a copy of the reporting package, or the alternative written notification as described by OMB Circular A-13 3 to all federal, state and other granting and pass --through agencies as required by Circular A-133. FORM/SAC01 P Page 7 of 12 3107 16. If not included in the audit report as provided in paragraphs 91. and 10.e., within 30 days after receiving the audit report the Entity will notify the State in writing as to what action it plans to take to correct any deficiencies or implement any recommendations identified or contained in the audit report, as required by Section 2-7-515, MCA, and ARM 2.4.409. This notification will also address any findings and recommendations contained in management letters, which are considered a part of the audit report as prescribed in paragraph 13. If the audit is a single audit conducted in accordance with OMB Circular A- 133, this corrective action plan will also meet the requirements of Circular A-13 3 and contain all information required by that Circular. 17. If requested by the State, the attorney for the Entity will report to the State on the actions taken or the proceedings instituted or to be instituted relating to violations of law and nonperformance of duty as required by Section 2-7-515(4), MCA. The attorney will report to the State within 30 days after receiving the request. 18. The Contractor certifies that, as required by generally accepted government auditing standards, it and its principals and employees are independent in all matters with respect to this engagement. The Contractor will neither arrange for, nor accept, non -auditing work with the Entity which could in any way impair the Contractor's independence in violation of professional standards. If required by the State, the Contractor must document that independence has been maintained in both fact and appearance as required by professional auditing standards. 19. The Contractor will be the prime contractor and shall be responsible, in total, for all work of any subcontractors. The Contractor will obtain the written approval of the Entity and the State prior to engaging correspondent Contractors, consultants, or subcontractors to provide services in connection with this audit. Any Contractors subcontracted to perform audit work must be on the Roster of Independent .Auditors authorized to conduct audits of Montana local governments that is maintained by the Local Government Services Bureau. The Contractor shall be responsible to the Entity and the State for the acts and omissions of all correspondent Contractors, consultants, subcontractors, or agents and of persons directly or indirectly employed by such correspondent Contractors, consultants, subcontractors or agents, and for the acts and omissions of persons employed directly by the Contractor. Further, nothing contained within this Contract shall create any contractual relationship between any correspondent Contractor, consultant, or subcontractor and the State. 20. The State may participate in all entrance and exit conferences between the Entity and Contractor, as well as all major conferences dealing with audit exceptions and recommendations regarding accounting or operating procedures, management policies, or internal control changes. 21. The Contractor will give the State and, when required by law, the Montana Legislative Audit Division, access to the Contractor's audit programs, supporting working papers, time records, and all other documents relating to the audit. Access to these documents will be provided at the State's offices in Helena, Montana. Access to working papers includes the right of the State to obtain copies of working papers, as is reasonable and necessary. The Contractor also agrees to make the audit programs and supporting working papers available to the State for use by the State or other public accounting firms as directed by the State in future audits of the Entity. The contractor also agrees to make the audit programs and supporting working papers available to the cognizant or oversight agency for audit or its designee, federal agencies providing direct or indirect funding, or the U.S. General Accounting office, if requested. Access to working papers includes the right of federal agencies to obtain copies of working papers, as is reasonable and necessary. The Contractor will retain the audit report, audit programs, and audit working papers for a minimum of four years from the date of the audit report, unless the State notifies the Contractor to extend the retention period. If professional standards or other FORM/SAC01 Page 8 of 12 3107 21. continued: applicable laws, rules, or regulations require a longer retention period, the auditor will retain the above materials for that specified period. 22. As provided by Section 2-7-522, MICA, the State may review the audit report submitted by the Contractor. If the State determines that reporting requirements have not been met, it will notify the Entity and the Contractor of the significant issues of noncompliance. The Contractor must correct the identified deficiencies within 60 days of notification. 23. The Entity and the State recognize that the Contractor is an independent public accountant, and neither the Entity nor the State will request or require the Contractor to surrender its "independence," as this terns is professionally understood and used concerning public accountants. It is understood by the parties to this contract that the Contractor is an independent contractor and that neither its principals nor its employees are employees of the State or Entity for purposes of tax, retirement system, or social security (FICA) withholding. 24. The Contractor certifies that it carries workers' Compensation for its employees and that it has either elected Workers' Compensation or has an approved Independent Contractor's Exemption covering the Contractor while performing work under this contract. (Montana Code Annotated, Title 39, Chapter 71) Neither the Contractor nor its employees are employees of the State for the purposes of this paragraph. 25. The Contractor agrees to protect, defend, and save the State, its elected and appointed officials, agents, and employees, while acting within the scope of their duties as such, harmless from and against all claims, demands, and causes of action of any kind or character, including the cost of defense thereof, arising in favor of the Contractor's employees or third parties on account of bodily or personal injuries, death, or damage to property arising out of services performed or omissions of services or in any way resulting from the acts or omission of the Contractor and/or its agents, employees, representatives, assigns, subcontractors, except the sole negligence of the State, under this agreement. 26. The Contractor must, in performance of work under this contract, fully comply with all applicable federal, state, or local laws, rules and regulations, Including the Montana Human Rights Act, the Civil Rights Act of 1964, the Age Discrimination Act of 1975, the Americans with Disabilities Act of 1990, and Section 504 of the Rehabilitation Act of 1973. Any subletting or subcontracting by the Contractor subjects subcontractors to the same provisions. In accordance with Section 49-3 -207, MICA, the Contractor agrees that the hiring of persons to perform the contract will be made on the basis of merit and qualifications and there will be no discrimination based upon race, color, religion, creed, political ideas, sex, age marital status, physical or mental disability, or national origin by the persons performing the Contract. 27. The Entity will provide the Contractor with reasonable space in which to conduct the audit, and respond promptly to requests for information as well as for all necessary books and records. Support for clerical, equipment, and photocopying or reproduction services shall be agreed upon by the Entity and the Contractor as specified in Appendices A, B and C. 28. Prior to the commencement of the audit, either the Contractor or the Entity, with the consent of the State, or the State, may cancel this contract by providing written notice to the other parties. The contract may be canceled under this paragraph for cause. Cause includes, but is not limited to, failure of any party to comply with the terms of this contract or with any Administrative Rule adopted by the State under the authority of Title 2, Chapter 7, Part 5, of the Montana Code Annotated. FORM/SAC01 Page 9 of 12 3/07 28. continued: In addition, if both the Contractor and the Entity mutually agree to cancel this contract prior to the commencement of the audit, regardless of whether there is cause, the State will consent to cancellation of the contract upon written notification by the Contractor and the Entity of their agreement to cancel this contract. The State, however, will not consent to the cancellation of an audit contract for the sole purpose of allowing the Contractor and Entity to then enter into a new contract that extends the number of fiscal years to be audited by the Contractor. Unless there are extenuating circumstances, the existing audit contract must be completed first. This provision does not prohibit the cancellation of a contract for the purpose of replacing an annual audit with a biennial audit. 29. After the audit has commenced, but before the audit report has been issued, either the Contractor or the Entity, with the consent of the State, or the State, may cancel this contract for failure of any party to comply with the terms of this contract or with any Administrative Rule adopted by the State under the authority of Title 2, Chapter 7, Part 5, of the Montana Code Annotated, or for other cause. If the contract is canceled due to the failure of the Contractor to comply, the Contractor is not entitled to the audit fee set out in this contract. If the contract is canceled due to the failure of the Entity to comply, the Entity will pay the Contractor a pro rata portion of the audit fee set out in this contract, based on the percentage of work completed at the time of cancellation. In addition, if both the Contractor and the Entity mutually agree to cancel this contract without establishing cause on the part of either party, the State will consent to cancellation of the contract upon written notification by the Contractor and the Entity of their agreement to cancel this contract. 30. The Contractor shall not assign, transfer or subcontract any portion of the contract without the express written consent of the Entity and the State. 31. By signing this contract, the Contractor certifies that it is in compliance with the continuing professional education requirements and the external quality control review requirements as set out in Government Auditing Standards, as established by the Comptroller General of the United States. The State may require the Contractor to provide evidence that it has met the above requirements. 32. If the audit is required to meet the requirements of the Single Audit Act of 1984 as amended by the Single Audit Act Amendments of 1996 and OMB Circular A-133, the Contractor certifies that neither it nor any of its principals is presently debarred, suspended, proposed for department, declared ineligible, or voluntarily excluded from performing audits by any Federal department or agency. 33. This Contract is governed by the laws of Montana. The parties agree that any litigation concerning this Contract in which the State is named as a party must be brought in the First Judicial District in and for the County of Lewis and Clark, State of Montana, and each party shall pay its own costs and attorney fees. The parties also agree that any litigation concerning this Contract in which the State is not named as a party must be brought in the Judicial District in and for the County in which the Entity is located, and each party shall pay its own costs and attorney fees. 34. This contract and the attached Appendices contain the entire understanding and agreement of the parties. No modification or amendment of this contract is valid unless it is reduced to writing, signed by the parties, and made a part of this contract. FORMISAC01 Page 10 of 12 3107 8 IN WITNESS WHEREOF, Contractor, Entity, and State have executed this Standard Audit Contract on the date first above written: Certified or Licensed Public Accountant Denning,Downey & Associates CPA's,--P.C. Firm Larne Date: Authorized Representative Governmental Entity City of Kalispell Entity Name Date: Authorized Representative Montana Department of Administration, Local Government Services Bureau Date: Authorized Representative FORIVIISACOI Page 11 of 12 3/07 APPENDIX A. Initial or Sole Audit Under This Contract GOVERNMENTAL ENTITY (ENTITI): City of Kalispell Telephone: (406)758-7755 Address: Po Box 1997 (Street Address or P.D. Box) Kalil ell , MT 59901 (City/Town) (Zip Code) Contact Person(s): AmyRobertson Finance Director PUBLIC ACCOUNTANT/ACCOUNTING FIRM (CONTRACTOR): Denning,Downey Associates CPA's P.C. Address: P.D. Box 1957 Telephone: (Street Address or P.D. Box) (406) 756-6879� Kalispell , MT 59903-1957 (City/Town) (.Zip Code) Contact Person(s): Robert K. Denning,CPA CGF CFF or Kin M. Downey, CPA CGFK CFF 1. Audit Period and Dates of Engagement: A. This audit will cover the fiscal year(s) ending June 30 52010 (and }. (Month & Day) (Year) (Year) B. Date to commence audit work: December 31 3010 C. Date to submit final audit report to Entity and State: March 31 2011 2. Time -and Price for Engagement: FY(s) Ending June 30 , 2010 (and ) (Month & Day) (Year) (Year) A. Estimated total hours -- 575 91. B. Price for audit personnel $ 25,825 Price for Travel Price for typing, clerical and report preparation Total price for this engagement $ 25 825 The reporting entity contains the following discretely presented component units N/A 4. Date Annual Financial Report or a trial balance will be available: August 31, 2010 FORM/SAC01 Page A 1 3107 S . Number of copies of audit report Contractor will provide to Entity: Three (3 ) 6. The Entity will provide clerical, equipment, and photocopying or reproduction services to the Contractor as follows: Photocopier 7. The audit scope with regard to federal financial assistance received by the Entity for the above fiscal year(s) will be as indicated below: 19 The audit will be a single audit conducted in accordance with the provisions of OMB Circular A-133 because the Entity expended a total amount of federal awardsequal to or in excess of $500,000 during the fiscal year(s), or such other dollar amount as may be established by OMB that is effective for the fiscal year(s) being audited OR El The audit will not be a single audit conducted in accordancewith the provisions of OMB CircularA-133, and will not include audit coverage of any federal financial assistance in accordance with requirements of that Circular, because the Entity expended a total amount of Ederal awards of less than $500,000 during the fiscal year(sl or such other dollar amount as may be established by OMB that is effective for the fiscal year(s) being audited. IN WITNESS WHEREOF: Certified or Licensed Public Accountant DenningDowne & Associates CPA's P.C. Firm Name Loan Date: Authorized Representative Governmental Entity Cfty of Kalispell Entity Name Io Date: Authorized Representative Montana Department of Administration, Local Government Services Bureau Date: Authorized Representative FOR.MISACOI Page A2 3/07 APPENDIX B Subsequent Audit Under This Contract GOVERNMENTAL ENTITY (ENTITY): Cily of Kalispell Telephone: (406)758-7755 Address: PO Box 1997 (Street Address or P.O. Box) Kalispell , MT 59901 (City/Town) (Zip Code) Contact Person(s): AmyRobertson Finance Director PUBLIC ACCOUNTANT/ACCOUNTING FIRM (CONTRACTOR): Dennina, Downe & Associates CPA's P.C. Address: P.O. Box 1957 Telephone: (Street Address or P.O. Box) (406) 756.6879 Kalispell ,NIT 59903-1957 (City/Town) (Zip Code) Contact Person(s): Robert K. Dennin CPA CGFU CFF or Kim. M. Downey CPA CGFM CFF I . Audit Period and Dates of Engagement: A. This audit will cover the fiscal year(s) ending June 30 2011 (and ). (Month & Day) (Year) (Year) B. Date to commence audit work: December 31 2011 C. Date to submit final audit report to Entity and State: March 31, 2012 2. Time and Price for Engagement: FY(s) Ending June 30 , 2011 (and ) (Month & Day) (Year) (Year) A. Estimated total hours - 575 3. B. Price for audit personnel $ 25 825 Price for Travel Price for typing, clerical and report preparation Total price for this engagement $ 25 825 The reporting entity contains the following discretely presented component units: NIA 4. Date Annual Financial Report or a trial balance will be avadble: August 31, 201 ] FORMISAC01 Page B1 3107 5. Number of copies of audit report Contractor will provide to Entity: Three (3 ) 6. The Entity will provide clerical, equipment, and photocopying or reproduction services to the Contractor as follows: Photocopier 7. The audit scope with regard to federal financial assistance received by the Entity for the above fiscal year(s) will be as indicated below: 9 The audit will be a single audit conducted in accordance with the provisions of OMB Circular A-133 because the Entity expended a total amount of federal awardsequal to or in excess of $500,000 during the fiscal year(s), or such other dollar amount as may be established by OMB that is effective for the fiscal year(s) being audited OR El The audit will not be a single audit conducted in accordancewith the provisions of OMB CircularA-133, and will not include audit coverage of any federal financial assistance in accordance with requirements of that Circular, because the Entity expended a total amount of fedral awards of less than $500,000 during the fiscal year(s), or such other dollar amount as may be established by OMB that is effective for the fiscal year(s) being audited. IN WITNESS WHEREOF: Certified or Licensed Public Accountant Denning,Downey &Associates CPA's P.C. Firma Name Authorized Representative Governmental Entity Ci of Kalis ell Entity Name I� Authorized Representative Montana Department of Administration, Local Government Services Bureau 0 Authorized Representative Date: Date: Date: FORM/SAC4l Page B2 3/07 APPENDIX C Subsequent Audit Under This Contract GOVERNMENTAL ENTITY (ENTITY: City of Kalispell Telephone: L406)758-7755 Address: PO Box 1997 (Street Address or P.O. Box) Kalispell , MT 59901 (City/Town) (Zip Code) Contact Person(s): .Amy Robertson Finance Director PUBLIC ACCOUNTANT/ACCOUNTING FIRM (CONTRACTOR): Dennin Downe & Associates CPA's P.C. Address: P.O. Box 1957 Telephone: (Street Address or P.O. Box) (406.)_ 75_6-6879Kalis ell , MT 59903-1957 (City/Town) (Zip Code) Contact Person(s): Robert K. Denning CPA CGFM CFF or Kim M. Downey, CPA CGFM CFF I . Audit Period and Dates of Engagement: A. This audit will cover the fiscal year(s) ending June 30 2012 (and ). (Month &.Day) (Year) (Year) B . Date to commence audit work: December 31 2012 C. Date to submit final audit report to Entity and State March 31 2013 2. Time and Price for Engagement: FY(s) Ending June 30 , 2012 (and ) (Month & Day) (Year) (Year) A. Estimated total hours - 575 0 B. Price for audit personnel $ 25 825 Price for Travel Price for typing, clerical and report preparation Total price for this engagement - 252-8.25 . The reporting entity contains the following discretely presented component units: NIA FORM/SAC01 Page C 1 3/07 4. Date Annual Financial Report or a trial balance will be availate: August 31, 20, 2 5. Number of copies of audit report Contractor will provide to Entity: Three 3 6. The Entity will provide clerical, equipment, and photocopyingor reproduction services to the Contractor as follows: Photocopier 7. The audit scope with regard to federal financial assistance received by the Entity for the above fiscal Year(s) will be as indicated below: ® The audit will be a single audit conducted in accordance with the provisions of OMB Circular A-133 because the Entity expended a total amount of federal awardsequal to or in excess of $500,000 during the fiscal year(s), or such other dollar amount as may be established by OMB that is effective for the fiscal year(s) being audited OR ❑ The audit will not be a single audit conducted in accordance with the provisions of OMB Circular A-133, and will not include audit coverage of any federal financial assistance in accordance with requirements of that Circular, because the Entity expended a total amount (f federal awards of less than $500,000 during the fiscal year(s), or such other dollar amount as may be established by OMB that is effective for the fiscal year(s) being audited. IN WITNESS WHEREOF: Certified or Licensed Public Accountant Dennin Downe & Associates CPA's P.C. Firm Name 00 Authorized Representative Governmental Entity Citv of Kalispell LIM Entity Name Authorized Representative Montana Department of Administration, Local Government Services Bureau �m Authorized Representative Date: Date: Date: FORM/SAC01 Page CZ 3/07 DENNINGDOWNEY & ASSOCIATES CPA's P.0 FIRM PROFILE FOR THE CITY OF KALISPELL Submitted by: Denning, .Downey & Associates, P.C. Certified Public Accountants P.G. Box 1957 Kalispell, MT 59903--1957 (406) 756-6879 November 19, 2009 Contact: Kim M. Downey, CPA, C GFM, CFF, CITP Robert K. Denning, CPA, CGFM, CFF, C1TP Denning, owe Also dates P. C. y CERTIFIED PUBLIC ACCO UNTANTS P.O. Box 1957 Kalispell, NIA"' 59903-1957 (406) 75 6- 68 79 a FAX (406) 257-7879 ■ .- Mail dda@ddaudit. com a - Kim M. Downey, CPA, CGF ,, CFF, CITP Robert K: Denning, CPA, CCFM, CFF, CITP CoverSheewrrsa■■a■■■f..•avf■■■.■rrr■•■*■/..r■■■■••wf■•■r■••■■•.■rr■.■•w■•rs■■■■r■■w■*r■+■■a■.■ I Company Profile, Staff Qualifications and Experience FinnProfile■.E.f.•■■■..■»■■■.■■•i..■■•■•!.r•■a■.■R.E■.■■■•/.■■■■■■.•■■■■■■!/!■.. ■.•■ 2 Experience. ■■...■...■.■•.■■■r■a■r■....■■w■r.■•■■■..■//.•..../■■■r..sla.•■..■./■*fr■r■ 2 References.■...».■.■.•raf■■./....■.•....■■■•■...//wr ■■,..r■■/».■r■■.s•ar■■■■.r■ ■.a■*. 3-4 ProfessionalCertifications■....f....■a.■■.a■■..*to ■a..r/f..s...■.E■.w■a.r.■of.r.r 5 Key Personnel: Years of Relevant Experience.■■a■.■■■a..*sofa •••■■■w■a■■.■ *Does *■■.■a 5, Methodology: Independence. •.aiboa ago ■■■.■■a■;saaa■s■■see r■a■■a■■.■.■aa■■■■■•■■.■r■a■.■■■ra•rrone ■• 6 Conflict of Interest•.■■aa•■+;..r.r•■■as..■a■r..•■•a■r.r■•■•!■■s■••..■•■■s./orr.■.■■■ 6 Strengths.■...•a■•a■■■•.•■••r+s;.■E■■/.■a■f./*me a■■r■.•■■■■■■■■ra.a■■..■a■■■••■■. a.■•■ 6 Audit V .elate and Interact•a■■■•■.w■■■■wwr/■■/••.■■;f.■■■.a!•i■■■■■•a!■»■•■■■■■■•/.a■a.■a;! 6 Conamunicationw.■■■a..../■.*f■■••!■r■•»i■•■■■■■aa■r.■■!;.■.■.fa■■■■i■...■■r■■■r■■■w 6 Strategyfor the Futures, ..■•.■.■■.■■.....■r■■aa.r■..r......■■.■■a•.■.■.■•r■■■■a■■■■ 7 Staff Training and CPE■■■scar■■■■■■■.!•■■■a■f..wa•■■■■■/■■a■■■■■a■r■■a■r■v.■•■■.r 7 GA SB #34 to #56./.aa/■a•■■r../ss■r■s*seems ■■■■■r■■■r■■■saw•■ssa■arr■■■.■s■.•■■■wawa Resultsof Peer Review...... 006410020 000 one.■■■s■a■■■r.•a.■s■s■■■ 7 ContactInformation....•/...■r■.■■•■w.■.r.■./.■.■Debate *■sa■*■■.■.•!.■■■.a.•■/..af■ 7 E. Peer Review opinion..w■■r■......■.■,■■»■■•r■./..■■■■■■■■■■■■•■•■fiif■■a■/r■•■■■ 8 [ 3 3 Denning, .down Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS R 0. Box 1957 Kalispell, AdT 59903-1957 (406) 756 6879 ,, FAX (406) 257-7879 • E Mail dda@ddaudit.com Kim M Downey, CPA, CGFM,, CFF, CITP Robert K Denning, CPA, CGFM, CFF, CITP November I9, 2009 City of Kalispell Mayor and City Council Attn: Array Robertson, Finance Officer PO Box 1997 Kalispell, MT 59901 Dear Ms. Robertson: We are pleased to submit our firm profile. The enclosed profile should answer most if not all questions regarding the firms experience and qualifications. If you have any questions or concerns please don't hesitate to call. V.ery,truly_�ours, r f Robert K. Denning, CPA, CGFM, CFF, CITP Company Profile, Staff Qualifications and Experience Firm Profile: Denning, Downey and Associates, CPA's PC started business in January 1994 with a focus on servicing Montana local governments and school districts complex and continually changing accounting and auditing needs. 16 years later, Montana local r government's accounting needs still account for 75 % of our business. We have offices located in Kalispell and Helena Montana. A summary of the staff positions and the percentage of total firm revenues are detailed below: Audit Division 75% of total firm revenues Shareholders 2 Audit Managers I Professional audit staff 4 Professional audit review staff I Paraprofessional staff 5 Support staff 2 Total audit division 15 Tax Division 5% of total firm revenues Professional tax staff 2 Paraprofessional tax staff I Total tax division 3 ]Experience: In the past year we audited 12 of the 56 Counties, 24 of the 91 Cities and Towns, and 1 52 of the 218 School Districts 13 other Districts and Component Units 3 of the 3 State Community Colleges e of the State of Montana governments that are required to have audits per the Montana Department of Administration audit status report. Those numbers represent 24% of f the audited local governments in Montana. our audit staff of 14 is responsible for auditing more Montana local governments than any other firm in the State. -2- Reference. The following is a partial list of our clients; please feel free to contact any of them for a reference. Counties I Beaverhead County j Broadwater County Jefferson County i Judith Basin County Lake County Liberty County � City of Dillon J City of Hardin City of East Helena City of Kalispell City of Whitefish City of Conrad City of Thompson Falls City of Cut Bank City of Shelby City of Boulder Town of Stanford Lincoln County Madison County Pondera County Sanders County Sweet Grass County Toole County Cities and Towns Town of Cascade Town of Chester Town of Eureka Town of Sheridan Town of Twin Bridges Town of Virginia City Town of Manhattan Town of Stevensville Town of Hot Springs Town of Browning Town of Philipsburg School Districts Townsend School District Sun River Valley School District Ulm School District Anaconda School District West Valley School District Deer Park School District Fair--Mont-Egan School District Swan River School District Kalispell School District Columbia Fall School District Cayuse Prairie School District Helena Flats School District Kila School District Somers School District Bigfork School District Whitefish School District Evergreen School District Olney -Bissell School District Philipsburg School District Havre School District Rocky Boy School District Montana City School District Arlee School District Valley View School District Swan Lake -Salmon School District Augusta School District Troy School District Libby School District Eureka School District Fortine School District McCormick School District Sunset School District Swan Valley School District Seeley Lake School District whitewater School District Stevensville School District Victor School District Darby School District Lone Rock School District Florence -Carlton School District Thompson Falls School District Trout Creek School District Hot Springs School District -3- Other Entities Bigfork Rural Fire District Northern Montana .point Refuse Disposal District Evergreen No 1 Rural Fire District Flathead Special Education Cooperative Bigfork water & Sewer District Park County Special Education Cooperative Pablo/Lake County water & Sewer Bitterroot valley Special Education Cooperative Pondera Regional Port Authority Sanders County Special Education Cooperative m Professional Certifications. I-~ Prior to forming Denning, Downey, and Associates, CPA's, P.C., the shareholders, Bob Denning and Kim Downey, both CPA's, Certified Government Financial Managers (CGFM) and Certified in Financial Forensics (CFF), were local government auditors from the Montana Department of Commerce. Together they bring a total of more than 40 years of Montana local government expertise to each of our clients. Because our focus is Montana local governments, we are able to provide the highest quality, most comprehensive service in the State of Montana. Key Personnel: Fears of Relevant Experience .Robert K. Denning, CPA, CGFM, CFF, CITP Bob is a 1987 graduate of Pacific Lutheran University in Tacoma, Washington. Prior to becoming a partner with Denning, Downey & Associates, CPA's, P.C., Bob spent four years with Hughes, Woodring, and Associates of Tacoma, Washington and over two years with Local Government Services Bureau of the Montana State Department of Commerce. while employed with Hughes, Woodring, and Associates, his duties included auditing for --profit, not -for -profit, and government subsidized entities, compilations, reviews, management advisory services, and tax preparation. During his years with Local Government Services, Bob was a senior auditor and served as in - charge auditor of many local government audits. He has performed seminars on GASB 14, 18, 31, and 34. Bob is a member of the Montana Society of CPA's, the Washington society of CPA's, the AICPA, the Association of Government Accountants (AGA), is a Certified Government Financial Manager, (CGFM), is a Certified in Financial Forensics (CFF) and is a Certified Information Technology Professional (CITP). Governmental Accounting Experience: Bob has amassed in excess of 40,000 hours of governmental audit experience over the past 21 years. .dim M. Downey, CPA, CGFM, CFF, CITP Kim is a 1988 graduate of the University of Montana. She has twenty years of audit experience. Kim was a senior auditor, and served as in -charge auditor of many local govennment audits while previously employed by the Montana Department of Commerce, Local Government Services Division. She is a member of the Montana Society of CPA's, the Washington Society of CPA's, past president and member of the Governmental Accounting, Auditing, Financial Reporting Committee, the AICPA, the Association of Government Accountants (AGA), is a Certified Government Financial Manager (CGFM) is a Certified in Financial Forensics (CFF) and is a Certified Information Technology Professional (CITP). Governmental Accounting Experience: Kim has amassed in excess of 40,000 hours of governmental audit experience over the past 20 years. Tomas Hayes CPA Prior to corning to work for Denning, Downey & Associates, CPAs, P.C. Torn was employed by the State of Montana, Department of Administration (DOA). Torn spent the last 18 years with the DOA as an Audit Quality Control Reviewer. He is a member of the Montana Society of CPA's and the AICPA. Governmental Accounting Experience: Torn has over 36,000 hours of government accounting experience. _5_ Methodo�o rwi..w�rrrr�r.�yr�in Independence: we require that all professional staff members be familiar with, and adhere to, the independence rules, regulations, interpretations, and rulings of the AICPA, the State of Montana Board of Public Accountants, and the U.S. General Accounting office. Each member of our staff is independent of your entity, and each individual assigned to the audit will sign an independence representation for the engagement. Conflict of interest:. Denning, Downey & Associates CPA's PC is aware of and complies with the independence rules of the AICPA, State Board of Accountancy and the U.S. General .Accounting office regarding possible conflicts of interest. Strengths: The strength of our firm lies in our overall auditing expertise. Individually and collectively we have a strong understanding of internal control, both conceptually and the practical aspects; of audit procedures and techniques; of federal program audit requirements; and of state legal compliance requirements. we have a thorough audit review process starting with the assignment of an owner as "In -Charge" of every client. The "In -Charge" ensures that all appropriate audit procedures are performed, the work is complete, and all conclusions are proper. Upon completion of the field work, an overall audit review and technical review of the audit report is performed by our in-house "audit reviewer." The audit reviewer is responsible for informing all audit staff of potential deficiencies in the work performed. Audit Philosophy: our firm is committed to conducting audits of the highest quality in the most efficient and effective manner possible. Efficiency and effectiveness is gained through extensive experience with similar entities and an organized planning process specifically designed to each individual audit. we are committed toprovidiniz technical assistance on an on- oin basis. Although we define and utilize the concept of materiality in conducting our audits, we also firmly believe that the internal control work should include all cash collection areas, regardless of the amount collected and some testing should be performed in these areas. Denning, Downey & Associates, CPAs P.C.'s philosophy that audits should be conducted in a friendl hel ful but com letel ob�ective and rofessional planner has helped us to establish an excellent reputation in our field of expertise. Relate and Interact: we will establish a professional, friendly, and courteous relationship with your administration and employees. Because of our many years of experience and individual personalities, we will conduct the audit with the least disruption possible to your employees. You will be kept informed on the audit progress and timely informed on any problem or potential problem areas of the audit. All audit f ndin s will be reviewed and ex lained to the a ro riate individuals. Communication: It is our philosophy to communicate fully with appropriate client personnel at the proper time as the audit progresses. we encourage full discussion of sensitive and complex issues in order to resolve all audit issues. The findings and recommendations, if any, that may be included in the various auditors' reports, including the management letter, will be constructive in nature, intended to be helpful, and informative. f Strategy for the Future: The base of our practice is, and will continue to be, in auditing and consulting of Montana local governments. we keep on top of emerging local government and auditing issues by subscribing to the appropriate reference material and by maintaining a complete library. In the past three years we have kept our clients current by providing annual update seminars. Staff training and Continuing Professional Education (CPE): Denning, Downey & Associates CPA's PC is committed to providing training for all staff in order to maintain the highest quality of audit possible. Governmental Auditing Standards requires all staff to have at least 24 hours of CPE related to government accounting every two years. Our firm requires that all professional staff have at least 80 hours of governmental CPE every two years. In addition we require that all non --professional staff have at a least 24 hours of governmental CPE annually. A complete listing of courses taken by the shareholders of the firm is available upon request. GASB #34 to 456: Since 1999, the GASB has been quite busy issuing 23 additional statements. we keep current on all the new requirements and will provide technical advice on topics that affect you. Annually we present a GASB update which is available to all of our clients. Results of Peer Review: Our most recent peer review was completed in August, 2007 and received an unqualified opinion. A copy of the opinion is provided in this proposal. The Finn has never been the object of an-v disciplinary action. Contact information: Robert K Denning, CPA CGFM, CFF, CITP is the shareholder assigned to your engagement. He will be your main contact, feel free to contact hire or Kim Downey CPA, CGFM, CFF, CITP shareholder at IgLny time. Bob's Phone Numbers: Office 756-6879 Ext. 101 Cell 253-6208 Home 756-8095 Kim's Phone Numbers: Office 756-6879 Ext. 102 Cell 253-6210 J. � Magnuson, mcfiugh Company, P.A. Cffis'and Consultants August 29, 2007 Kim M. Downey, CPA Denning, Downey & Associates, P.C. 1740 US Hwy 93 south, Suite 1.01 Kalispell, MT 59901 We have' reviewed the system of - quality control - for the accounting and auditing practice of Denning, Downey & Associates, P.C. (the firm) in effect for the year ended May 31, 2007. A system- of quality control encompasses- the firm's organizational structure, the policies -adopted 1121 •Mullan A -venue and procedures established to provide. it with reason�bie assurance of conforming yYifh professional standards. The elements of quality. control are described in the Statements on Quality Control-- Standards issued by -the American Institute of CPAs. (AICPA) _ The" firm is resppnsib[e for designing a system of quality control -and complying -with it to provide thee- firrn Po Box 13 79 reasonable assurance of Gonfarmirig with. professional standards in -all material respects. Our responsibility. is to.express. an opinion on the design- of the system of quality control and the fitm's cornpliarice with its. system of quality control based on our review. Coeur d'Alene, ID Our review was conducted in accordance with standards ei established by the Peer Rviowi Board of the AICPA. During our review, we read required representations from the firm, interview.Lm'd firm personnel and obtained an understanding of -the nature: of the firm's accounting and auditing practice, and the design of the firm's system cif 'quality contrdl sufficient -to assess the risks. implicit in . its practice. Based on our assessments, we selected engagements arid. s3sxG-��� administrative files, to test for conformity with professional standards and* compliance with the firm's system of quality control. The engagements selected represented a reason4ble cross- section of the firm's accounting" -and auditing- practice 'with emphasis on higher --risk engagements. The engagements selected included- among others, engagements performed 2087765-9500 under Gorrernment Auditing Standards. Prior to' conchiding the -review, we reassessed- the adequacy -of the scope of -the peer review procedures and met with firm management to discuss the results of -our review. We believe that the procedures we performed: provide a reasonable basis far our opin ion . 800-735-1.315 In performing our review; we, obtained an understanding of the system of quality control for the = firm's accounting and -auditing practice. In .addition, We tested compliance with the firm's quality control policies and procedures .to the extent we considered appropriate. These tests covered ' the application of the firm policies and procedures on selected engagement. Our -review was fax: 2os-GG7-974 based on selected -tests, therefore, it -would not necessarily detect all weaknesses in the system of 'quality control or all instances of noncompliance with- it. There are inherent limitations in the effectiveness of any system of quality control and; therefore, noncomplian- ce with the system of quality control 'may occur -'and not be detected. Projection of any evaluation of a system of r7asCarnmcocpa--cohi quality control to future periods is subjeQt' to the risk that .the system of quality control may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may Bete ho rate: I int on Us ro Care. In our opinion, the system of quality control for the accounting and auditing practice of Denning, Downey & Associates, P.C. in effect for the year ended May 31, 2007, .has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the- AIGPA and was complied with during the year then ended to provide the firm } with reasonable assurance of -conforming with professional standards. i MAGNUSbN, MCHUGH & CO., P.A.